Stocks extended gains after the report showed gains in
orders, production and factory employment after a fourth-quarter
acceleration in consumer purchases and a rebound in business
spending. The housing recovery and stabilization in overseas
markets indicate factories may keep adding to growth in the
world’s largest economy this year.

“Manufacturing is on the mend,” said Brian Jones, senior
U.S. economist at Societe Generale in New York, who projected a
reading of 52. “Things are getting better as we begin the
year.”

Another report this morning showed hiring increased in
January after accelerating more than previously estimated at the
end of 2012, evidence the U.S. labor market was making progress
even as lawmakers quarreled over the federal budget.

Payrolls rose 157,000 following a revised 196,000 advance
in the prior month and a 247,000 surge in November, Labor
Department figures showed today in Washington. The revisions
added a total of 127,000 jobs to the employment count in
November and December. The jobless rate increased to 7.9 percent
from 7.8 percent.

Economists’ Estimates

Estimates for the January ISM gauge in the Bloomberg survey
ranged from 49.2 to 52.5.

“While we’re off to a great start” to the year, “we just
have to see how things materialize,” Bradley Holcomb, chairman
of the ISM factory survey, said on a conference call with
reporters. “We’re not out of the woods yet.”

Today’s report showed the ISM’s production index increased
to 53.6 from 52.6. The new orders measure rose to 53.3, the
highest since May, from 49.7.

The employment gauge increased to seven-month high of 54
from 51.9 in the prior month.

The measure of orders waiting to be filled fell to 47.5
from 48.5. The inventory index climbed to 51 from 43. A figure
higher than 50 means manufacturers are building stockpiles. A
gauge of customer stockpiles rose to 48.5 from 47.

Prices Paid

The index of prices paid increased to 56.5 from 55.5.

Manufacturing, which accounts for about 12 percent of the
U.S. economy, was at the forefront in the early stages of the
recovery that began in June 2009.

Figures yesterday showed the MNI Chicago Report’s business
barometer rose to 55.6 in January, the highest since April,
after 50 in December, signaling business activity picked up.

Elsewhere, U.K. manufacturing expanded in January for a
second month. A gauge of factory activity eased to 50.8 from a
revised 51.2 in December, Markit and the Chartered Institute of
Purchasing and Supply said in London today.

In the euro-area, manufacturing continued to shrink.
Markit’s gauge rose to 47.9 last month from 46.1 in December.

Chinese Manufacturing

The Purchasing Managers’ Index was 50.4 in January compared
with 50.6 in December, the National Bureau of Statistics and
China Federation of Logistics and Purchasing said today in
Beijing as they more than tripled the number of companies
surveyed. A separate gauge from HSBC Holdings Plc and Markit
Economics covering fewer businesses rose to a two-year high of
52.3 from 51.5.

Earlier this week, a Commerce Department report showed
business investment in equipment and software climbed at a 12.4
percent annual rate in the fourth quarter, the best performance
in more than a year, after a drop the prior quarter.

Caterpillar Inc., the world’s largest maker of construction
and mining equipment, is among manufacturers expecting an
improving outlook.

‘Increasingly Optimistic’

“In the United States, we’re becoming increasingly
optimistic,” Michael DeWalt, a spokesman for Peoria, Illinois-based Caterpillar, said on a Jan 28 conference call with
analysts. “We expect U.S. housing industry to help the economy
in 2013.”

An improving housing market is also helping manufacturers
such as DuPont Co., the biggest U.S. chemical maker by market
value. Rising demand for plastics used in autos helped the
Wilmington, Delaware-based company to report fourth-quarter
earnings that exceeded analysts’ estimates. DuPont also said
sales in 2013 will climb to $36 billion from $34.8 billion.

“The U.S. is experiencing a weak recovery with bright
spots and pent-up demand for housing and autos,” Chief
Executive Officer Ellen Kullman said on a Jan. 22 earnings call.

Consumer purchases grew at a 2.2 percent pace in the fourth
quarter, up from 1.6 percent in the previous three months, as
Americans bought more durable goods including automobiles. A
plunge in defense outlays and slower stockpiling led the economy
to contract at a 0.1 percent annual pace in the final three
months of 2012.

Automobile purchases also may support factory production
this year. November-December was the best back-to-back showing
for car- and light-truck sales since early 2008, according to
Ward’s Automotive Group.